The Man Can't Tax Our Music

The music industry wants to impose an onerous new fee on broadcasters.

For decades, record companies have been begging radio stations to play their music. Sometimes they do more than beg: Few sorts of scandal reappear as reliably in the music business as a payola scandal, in which agents of the labels are caught bribing broadcasters to air their wares. In the Internet age, the AM and FM dials aren't as important to promoting music as they used to be, but they continue to play the preeminent role in the process. As Clive Davis, a dominant figure in the record industry since the '60s, told USA Today just this month, "Radio is still the leading force of determining what songs and artists break through."

Now the Recording Industry Association of America and a coalition of other industry groups are backing a bill, the Performance Rights Act, that would require those same stations to pay a new fee for the right to air those records. An industry that is infamously willing to pay for airplay apparently wants to charge for airplay too.

This isn't the small tribute the stations have long paid to songwriters. The money will go instead to the performers and copyright owners. (Those are sometimes, but not always, the same thing.) It would essentially be an extension of a fee already paid by Internet, satellite, and cable radio stations—indeed, the industry's basic argument for the measure is that it will close a "loophole" that has allowed traditional outlets to escape the payment. The musicFIRST Coalition, a lobby created two years ago to push for such a bill, has accused broadcasters opposed to the legislation of believing that "AM and FM music radio stations should continue to get special treatment, that AM and FM music radio stations do not have to play by the rules, and that AM and FM music radio stations should enjoy a competitive advantage over other music platforms."

But it's not as though this is an inexplicable inconsistency in the law. The disparity didn't exist until 1995, when Congress passed the Digital Performance Right in Sound Recordings Act at the behest of the very forces that now decry the separate-and-unequal system that bill created. W. Jonathan Cardi, an assistant professor of law at the University of Kentucky, summarized the record industry's argument for the act in a 2007 article for the Iowa Law Review:

without some ability to control the digital performance of their recordings, they would be less able to prevent infringements of their existing reproduction, distribution, and derivative work rights. The labels maintained, for example, that if online services could freely transmit recordings in any manner they pleased, such performances would facilitate the creation of infringing reproductions on users' computer hard drives.

Set aside the question of whether those claims were accurate. For our purposes, the most important fact about the labels' argument is that it hinged on the idea that digital broadcasting is different from conventional broadcasting. Fourteen years later, as it attempts to impose a performance fee on AM and FM broadcasters as well, the industry now wants to claim the channels are equivalent after all.

This turnaround happened with astonishing speed. For practical purposes, Internet stations did not feel the effect of the 1995 law until the performance levy's levels were established for the first time in 2002. (Under the Digital Millennium Copyright Act of 1998, the levels are periodically reset.) The Web broadcasting community was consequently crippled, and several outlets were eliminated entirely. For most of the last decade, the inconsistency in the law was widely regarded as an unjust burden on Webcasters. Now it has become the nose under the tent allowing the RIAA to call for imposing the fees on everyone outside the Internet too.

And for what? Imagine, as a thought experiment, that this bill were passed and, simultaneously, payola were made fully legal. Does anyone doubt that more money would flow toward the radio stations than away? Radio remains the primary means by which the music industry promotes its product. By pushing for this fee, the labels are essentially asking their advertisers to pay them for the service of selling their stuff.

Ah, you say, but what about the independent artists who don't get big promotional pushes from the major music labels? Surely they'd benefit from a new revenue stream? Actually, they'll be even worse off. The economic mission of most commercial radio stations is to deliver audiences to the sponsors whose spots are aired between tunes. So programmers have a built-in preference for music whose mass appeal has already been proven. If you increase the cost of playing a record, that just intensifies the incentive: The more you pay to play a song, the more conservative you'll be about which songs you play. The marginal cost of playing each track is the same, but the commercial payoff is greater for established artists.

Generally speaking, the more it costs to run a station, the more risk-averse it will be. That's one reason low-power and Web outlets are more experimental: They don't have as much money on the line. But those stations—the ones that go out of their way to play diverse and unfamiliar material—are precisely the ones that have the hardest time paying the song tax. The proposed law acknowledges the problem by introducing a sliding scale, with the least profitable outfits paying $500 a year. But while that may be chump change for a big broadcaster, it's a pretty big piece of the operating budget for a low-power, volunteer-run community or student station.

Nor is it the only cost the law will impose. "The record labels are completely out of touch as to how college radio stations operate," Warren Kozireski, president of College Broadcasters Inc., recently complained on his organization's website. "The extensive record keeping requirements that will be required by the Copyright Royalty Board alone will add hundreds, if not thousands of dollars to the true cost of a performance fee." It's relatively easy to do that book-keeping if you have a narrow playlist and rarely deviate from it, as is the case with most large commercial radio stations. But if you have a library of thousands of albums and 45s, many of which were never reissued on CD, and if you allow your DJs to choose which ones they play—or even to bring in still more music from their personal collections of rare soul or jazz or bluegrass or electronica obscurities—then tracking the data suddenly becomes a full-time job.

Worse yet: Though the rhetoric around the proposal focuses on the benefits to musicians, much of the money won't make it to the artists in the first place. In part that reflects the fact that the fees go not just to the performers but to the copyright owner, which frequently means the record company. But it also reflects the corruption in the industry, which legislation like this has probably abetted.

The Web radio experience is instructive. The institution that distributes performance fees to artists is SoundExchange, an organization that spun off from the Recording Industry Association of America in 2003. In 2007, the Houston Press noted that the group was apparently unable to locate about 25 percent of the performers on whose behalf it was allegedly acting. After perusing the list of lost musicians, the Press's John Nova Lomax reported that "in less than five minutes of Googling, I found the official Web sites and/or MySpace pages of Fito Olivares, Goudie, Mark May, the Hollisters and Los Skarnales. What's more, highly visible people like Cam'ron (fresh off a highly-publicized appearance on 60 Minutes), Fat Joe and Danzig are on the 'lost' list too."

Some of these artists had indeed been contacted by SoundExchange and had merely failed to send in some necessary paperwork. But Lomax didn't believe this was true of all of them. SoundExchange, you see, faced a perverse incentive. Any money it couldn't distribute it got to keep.

At the moment, the momentum is against the legislation. Last month the House Judiciary Committee approved it by a lopsided vote of 21 to 9, but since then the civil rights community has been blasting the bill by noting the negative effect it would have on small, minority-owned stations. This has cut into the law's support among Democrats. More than half of the House has now co-sponsored an opposing measure, a nonbinding resolution dubbed the Local Radio Freedom Act, which opposes saddling stations with "any new performance fee, tax, royalty, or other charge." Whether or not that counterproposal passes, the number of legislators endorsing it certainly suggests that the Performance Rights Act is unlikely to become law this time around.

That's good news. But I'll side with the labels on one point: It is unfair that such a fee should fall on digital stations but not on their analog competitors. Justice demands that the digital performance right be eliminated entirely—for Web, satellite, and cable broadcasters as well as traditional terrestrial stations. That would allow more stations to flower. And it would give artists new opportunities to expand their income the old-fashioned way: by expanding their audiences.

Jesse Walker is Reason's managing editor and the author of Rebels on the Air: An Alternative History of Radio in America.